Small Businesses Accounting Essentials: A Guide to Financial Success

Small businesses in Oakland have to undergo a lot of financial hardship to keep things moving smoothly. Amidst all the hustle, business accounting is something that small businesses find challenging to keep up with. Following state and federal regulations, creating financial reports, and preparing taxes, all while also trying to scale the business is a challenging task.

Therefore, a part-time CPA in Oakland, CA, can be a real boon for small businesses to manage such mammoth tasks with ease.

Tax and regulatory challenges 

The biggest challenge the business owners have to face in Oakland is dealing with the local, state, and federal tax regulations. Depending on the nature of the business, you may have to pay one or more of the following taxes.

• California Corporate Taxes: Businesses belonging to C corporations and LLC (limited liability companies) have to pay the California corporate tax on the profits they earn. It is pertinent to mention that the corporate tax rate in California is 8.84%, which is higher than the average corporate tax rate in the US.
• California alternative minimum tax (AMT): Many C corporations and LLCs take advantage of various business tax deductions and credits and don’t report a net income profit have to pay California alternative minimum tax (AMT), which is applicable at the rate of 6.65%.
• California franchise taxes: Despite its name, the California franchise tax does not apply to franchise businesses alone. Instead, certain types of businesses have to pay this tax for the privilege of doing business in the state of California. Here’s a breakdown of the California franchise tax applicability:

C Corps- minimum $800

S Corps- @1.5% of the net income or $800, whichever is larger

LLC- minimum $800 for businesses that earn less than $250K annually, $900 for $250K-$499,99, $2,500 for $500K – $999,999, $6,000 for $1M-$499,999, and $11,790 for above $5M.

C Corp LLCs: minimum $800

LLPs and LPs: Since LLPs and LPs are also considered LLCs, they have to pay a minimum of $800 toward franchise tax

General or sole proprietorship: Franchise tax not applicable.

• State income tax: General or sole proprietors, independent contractors, or individuals who earn income through entities like LLCs and S-corps have to file state income tax, which, depending on the filing status and tax bracket, ranges between 1% to 12.3%.

Accounting essentials for business owners

Apart from aforesaid business tax implications, small business owners also have to take care of the following tasks to ensure the sustainability of the business in the long run.

• Bookkeeping: Bookkeeping is the basic yet most essential business task. Bookkeeping helps businesses with accurate budgeting, aids in tax preparation, maintaining records, compliance with government regulations, and much more.
• Expense tracking: Expense tracking enables business owners to take control of their finances and stick to the budget by organizing expenses into fixed, periodic, and variable categories. Besides, it’ll also give you a time frame to manage your finances and let you know where your money goes so you can curb unnecessary expenses.
• Cash flow management: Cash flow management gives business owners a clear view of the costs versus the revenues. It can help you have sufficient funds for various payments while also making a profit. To manage the cash flow, you’ll have to take into account your operational expenses, investments, and finances, as it’ll help you keep the business afloat with timely payments and a good credit rating.
• Financial statements and reporting: FInancial reports like balance sheets, income statements, statements of cash flow, shareholders’ equity, etc., are some of the most important components of successful business operations. They help you present the financial condition of your business, evaluate operations, examine cash flow, and help with business decision-making.
• Financial planning: Financial planning helps business owners set realistic financial goals, supports informed decision-making, and improves financial performance. It involves accurate budgeting, forecasting, and resource allocation across all business sectors, creating a clear path to growth and stability.

Managing finances and accounting altogether can be a headache for small businesses. However, it doesn’t have to be that way. You can quickly get done with the toughest of accounting tasks simply by having a professional by your side.